USD/CAD set for correction?
Fawad Razaqzada July 23, 2018 8:36 AM
The USD/CAD slumped on Friday following the release of stronger Canadian data while the US dollar pulled back across the board amid profit taking and after Donald Trump had criticised the Federal Reserve’s interest rate rises the day before. Canada's retail sales rose 2.0% month-over-month in May versus 1.0% expected with core sales climbing 1.4% on the month, also better than expected. The nation’s latest consumer price inflation data was in line with the expectations though, with headline CPI rising 0.1% month-over-month in June. Still, the data overall does underscore the Bank of Canada’s hawkish views on the economy and rising interest rates outlook. Meanwhile with the Federal Reserve’s two further hikes in 2018 well documented, it could be that the markets have already priced them in. Consequently, the Canadian dollar could be on the verge of starting a new bullish trend against her southern counterpart. Put another way, a new bearish trend may be forming in the USD/CAD exchange rate.
Indeed, that’s the ‘feeling’ we get from looking at the USD/CAD’s charts. Since peaking out at just below the 1.47 handle in January 2016, this popular North American pair has put in two distinct lower lows: one in May 2015 and the other in September 2017. It made a lower high in May 2017 and could be in the process of forming another lower high around these levels. Last month, it hit a key long-term resistance level at 1.3385 and reacted by falling sharply from there. It then rebounded and made back a good chunk of those losses over the past couple of weeks, only for the rally to come to an abrupt halt on Friday as price hit another band of resistance in the 1.3275-90 range. This time the selling pressure was aided by a broad-based sell-off in the US dollar while stronger Canadian data helped to support the Canadian dollar.
As a result of Friday’s sell-off, the USD/CAD has formed a bearish engulfing candle on the daily time frame while a pin bar pattern was created on the weekly. What’s more, that long-term resistance on the monthly chart at 1.3385 was defended by the bears, while the bulls lost control of another short-term support – this time at 1.3160. This level is now the new short-term resistance for the bears to defend. The next short-term support comes in at 1.3050, the point of origin of the most recent breakout in mid-June. The base of that breakout comes in at 1.2950. The latter is therefore pivotal as far as the directional bias is concerned. If the buyers lose control of this level then the recent downward move will be confirmed as the start of a new bearish trend.
Source: TradingView.com and FOREX.com.
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